The most common financial regret people have, regardless of their age, is that they did not start saving money sooner. As young adults begin their professional lives, saving money is the last thing on their minds. Not only does it take years for university graduates to repay HECs debts, ongoing expenses such as rent, car loan repayments and grocery shops pile up along the way too. Keeping in mind the sudden onslaught of financial responsibilities on young adults as they age through their 20s, it’s a good idea for teenagers to develop strong personal finance habits before they start uni.
Fehmeen Kay, the founder of Top Money Hacks, shares 6 personal finance tips for teenagers to help them create the building blocks for financial independence.
Track your spending
As a teenager, you may perceive the budgeting process as intimidating or dull, but in its simplest form, budgeting is a basic record of all your money inflows and outflows. Your monthly allowances typically count as inflows, and any purchases made at the school canteen, local café or milk bar would account for most of the outflows. The budgeting exercise’s goal is not to turn you into a penny-pincher, but into a frugal and financially aware individual who fully understands his/her spending patterns, which will form the basis of a stable financial life.
Whether you create a detailed budget of all your expenses or a simple two-figure record of your overall income and expenses, is entirely up to you. Just make sure your enjoy the process and the feeling of empowerment that comes with being in control of your money.
Get a job
There may not be a reason for you to work as a teenager if your parents are fully financing you, or your culture may not encourage you to start earning money before you graduate from high school, but if your parents are on board with the idea, make an effort to earn some money yourself. If there are no appropriate part-time work opportunities in your area, like babysitting jobs or openings at a local café, look for freelancing opportunities online. Apart from the benefit of increasing your money inflows, the job will help you develop a strong work ethic, impart upon you the value of money and add extra job experience to your résumé.
Save your allowance and incomes
You probably look forward to the day your allowances or paychecks from part-time jobs come through because a long list of necessary purchases is often waiting to be serviced. It can be tempting to spend the entire sum of money on personal purchases because you may not have any financial responsibilities of your own. Instead of using up all your money within the month, try to save at 10-20% of it, perhaps for something expensive you want to buy in the future, or simply to get in the habit of saving money, which will be a very valuable habit when you move out of your parents’ home and begin full time work.
Set up a bank account
Piggy banks will help keep your money safe for a few months, but if you regularly add to that stash, you will run out of space eventually. Let’s not forget the obvious safety risk of placing your money in a plastic, wooden or glass box at home.
Plenty of banks allow parents or guardians to open accounts on behalf of children and as a teenager you can make full use of this financial service too. If you choose to open a savings account, you will not be able to freely withdraw money from it but generally you can enjoy the benefits of interest rates multiplying your funds. Each bank offers saving accounts with different features so make sure you compare your options before making a decision.
Understand how debt works
As soon as a teenager turns 18, they are eligible to borrow money from banks, such as via credit cards and personal loans. Without a proper understanding of how debt multiplies it can put your personal assets at risk, you could end up financially trapping yourself for years.
Interest rates are calculated in a manner that can quickly add to your outstanding dues, especially if you miss a loan installment. When you make a purchase with credit cards, remember to pay the credit card bill before the due date otherwise you will be charged interest on your debt, which will keep accumulating every month you delay the payment of the bill. Furthermore, if the debt has been secured, you run the risk of having your personal assets seized by the bank in order to recover the debt. There is a lot more to the debt system than I have mentioned – some good, some bad – so be sure to abundantly arm yourself with knowledge before entering such financial contracts with creditors.
Learn about the stock market
You may be too young to individually invest in the Australian stock market, but you can certainly learn how investments are made to multiply one’s assets. Find a family member that has invested in stocks and bonds and ask them to guide you a bit regarding which bonds/stocks to choose, when to buy and sell them, the associated risks, and most importantly, how to carry out such a transaction. Once you realize it is not as complicated as it is made out to be, you will be confident about tapping into the capital market as an adult in order to accumulate assets. You can also head over to your library to read up on the topic or attend a financial literacy workshop or class being offered at your school.
These personal finance tips do not promise a bright financial future, but they will help you develop the necessary habits and the knowledge base needed to set you on your path to financial freedom. Discuss them with your parents before implementing them, and add momentum to your financial dreams.